Debt limit: Some key questions about borrowing, default

WASHINGTON (AP) — With one week to go, Congress must act fast and come up with a way to raise the federal borrowing limit or face an unprecedented government default.It's commonly known as the debt limit, and increasing the government's borrowing cap is a must-do task. The United States has never defaulted on its debts and bills, but it's a politically toxic vote for most GOP lawmakers who insist the government must rein in its spending and are demanding concessions from President Barack Obama. The administration says there is no need for budget brinkmanship and the United States should pay its bills.Republican leaders, led by Speaker John Boehner, R-Ohio, and Senate Majority Leader Mitch McConnell, R-Ky., were trying to come up with a plan this week and rally the rank and file to back it.Here are some key questions and answers about the debt limit:___What is the debt limit?The debt limit is a cap on government borrowing. The Treasury Department has flexibility to manage the government's debts and cash flows and issue new debt that's needed to pay the bills as long as the cap hasn't been breached.___Why does it have to be raised?Even though the government's fiscal health is improving, it ran a $439 billion deficit in the just concluded budget year. The government must still issue bonds and Treasury notes to raise cash to meet its obligations. If the government runs out of money, it won't be able to pay its bills on time and in full. That means delays in Medicare payments to health care providers and Social Security benefits to recipients as well as a slowdown in paying interest on U.S. treasuries, military and civilian federal salaries and money to federal contractors.___What's the deadline?Last year, Congress passed legislation that permitted the government to borrow to meet its needs through March 15, when the debt limit was reset at $18.1 trillion. Since then, Treasury Secretary Jacob Lew has used accounting moves to free up cash, but such "extraordinary measures" run out on Nov. 3. Treasury will only have a modest amount of money on hand after that. It will be forced to rely on daily cash flows to pay its bills.According to budget analysts at the Bipartisan Policy Center, a Washington think tank, the government wouldn't actually miss a payment until Nov. 10 at the earliest.___What is a default?It's commonly interpreted to mean that the government is late in making payments on U.S. Treasury securities. Under a broader definition, the U.S. would default if it's late in paying other bills as well.___What happens if there is a default?Well, it's never happened, so no one knows for sure.Some experts believe financial markets would implode before the government misses a payment. If capital markets begin to have doubts about the creditworthiness of the United States, it would have a severe effect on global capital markets — as well as on interest rates on U.S. treasuries.The government, however, has the ability to pay its debt obligations first. Treasury's payment systems aren't designed to prioritize other payments like Social Security benefits.___How is default different from a government shutdown?It's far more serious. A government shutdown, like the partial 16-day shuttering in 2013, only affects agency operating budgets. Then, important benefit programs like Social Security and Medicare were not interrupted and essential government workers like Transportation Security Administration agents, the military and the Border Patrol reported to work as scheduled.____Why are the politics so tricky?No one really wants to vote to issue more debt, especially tea party Republicans who dislike Obama. Not long ago, votes on the debt limit were conducted under an informal set of rules depending on which party controlled the White House and who controlled Congress. Basically, if you were aligned with the president you'd be expected to deliver support for a debt increase. So too would the party in control of Congress.Join the conversation about this story »

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Just a few hours after House GOP leaders floated a plan to fellow Republicans to counter an emerging Senate deal to reopen the government and forestall an economy-rattling default on U.S. obligations, the plan was rejected by the White House. The New York Times reports that the House GOP have backed off the proposal.

A short-term debt deal won't end fierce dynamics that killed past bids for a bigger accord WASHINGTON (AP) — Hold the champagne. Even if Congress reaches a last-minute or deadline-busting deal to avert a federal default and fully reopen the government, elected officials are likely to return to their grinding brand of brinkmanship — perhaps repeatedly.

WASHINGTON (AP) — Democrats controlling the Senate are planning to try to pass a stand-alone measure to increase the government's borrowing cap, challenging Republicans to a filibuster showdown that could unnerve financial markets as the deadline to a first-ever default on U.S. obligations draws closer.

WASHINGTON (AP) — Most Americans think jarring economic problems will erupt if lawmakers fail to increase the government's borrowing limit. Yet they're torn over how or even whether to raise it, leaning toward Republican demands that any boost be accompanied by spending cuts. According to an Associated Press-GfK poll, 53 percent say that if the debt limit is not extended and the U.S. defaults, the country will face a major economic crisis. An additional 27 percent say such a crisis would be somewhat likely, while just 17 percent largely dismiss the prospects of such damage.

WASHINGTON — House Speaker John Boehner told Republican lawmakers Thursday he will give President Barack Obama a proposal extending the government’s ability to borrow money through Nov. 22 — but only if he agrees to negotiate over ending the partial government shutdown and a longer-term increase in the debt ceiling.
“It gets us down the road a little bit so they can continue to talk,” Rep. Tim Griffin, R-Ark., said after Boehner presented the plan to a closed-door meeting of House Republicans.

WASHINGTON — The Republican-controlled House will vote next week to permit the government to borrow more money to meet its obligations, a move aimed at heading off a market-rattling confrontation with President Barack Obama over the so-called debt limit.
Full details aren’t settled yet, but the measure would give the government about three more months of borrowing authority beyond a deadline expected to hit as early as mid-February, a Republican official said Friday.